ONEOK: Increased Drilling in STACK and SCOOP Plays Provides Growth Opportunities

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Researched by Industrial Info Resources (Sugar Land, Texas)--Executives at ONEOK Incorporated (NYSE:OKE) recently discussed the positive implications of future developments in the company's existing gathering and processing areas. The company in early February announced its plan to buy the remaining share of master limited partnership ONEOK Partners (NYSE:OKS) (Tulsa), which will help add to ONEOK's bottom line in coming years. Industrial Info is tracking $731 million in active ONEOK projects.

In a conference call regarding the company's 2016 results, Chief Executive Officer Terry Spencer said: "We expect 2017 NGL (natural gas liquids) volumes to be driven by increased drilling activity across our system and the ramp-up and full-year benefit of the six natural gas processing plants we connected in 2016. We also expect to connect an additional six plants this year, including one in the Rocky Mountain region, three in the mid-continent and two in the Permian Basin. ... Producers are planning to move more rigs to the STACK and SCOOP area and the Williston Basin by mid-year, and with the ramp-up of new processing plants, we expect volumes to increase significantly during the back half of 2017."

Among ONEOK's projects that stands to benefit from these increased rigs by the end of this year is a grassroot NGL pipeline loop in North Dakota. The $30 million project involves construction of more than 14 miles of pipeline from Arnegard, North Dakota, to increase system capacity from 74,000 barrels per day (BBL/d) to 93,000 BBL/d of Y-grade NGLs and reduce pressure on the existing line.

"Producers across our natural gas gathering and processing system have accelerated their drilling activity, particularly in the prolific STACK and SCOOP plays, where production results continue to improve," said Spencer. "We currently have 10 to 12 rigs on our dedicated acreage in the STACK and SCOOP, compared with three to four rigs at the low point of 2016. Recently, a number of our gathering and processing customers, which account for more than 200,000 acres of dedication, have increased their drilling programs, which could push rigs on acreage to 17 to 20 by the end of 2017."

Ethane rejection, due to low prices, remains a problem for the company, which it expects to be somewhat resolved in the coming years. Spencer said that severe weather and ethane rejection reduced the company's fourth-quarter results by approximately $15 million. "While ethane recovery is an important part of our growth outlook and is expected to provide additional volume growth into 2018, it's important to note that our 2017 financial guidance expects increased recovery of ethane to provide $40 million to $60 million of adjusted EBITDA growth."

The company reported net income in fourth-quarter 2016 of $90.5 million, compared with fourth-quarter 2015 net income of $25.5 million.

Among the largest ONEOK projects being tracked by Industrial Info is a loop of the Roadrunner natural gas transmission pipeline, which involves the installation of 205 miles of 30-inch diameter pipeline to transport up to 875 million standard cubic feet per day of natural gas from ONEOK's Coyanosa Waha Hub near Odessa, Texas, to a new U.S.-Mexico border crossing near San Elizario, Texas. The project kicked off in the first quarter of 2016 and is expected to be completed toward the end of this year.

Also on the books is the $150 million grassroot liquefied petroleum gas (LPG) pipeline from El Paso, Texas, to Carlsbad, New Mexico. The project is planned to kick off during the second quarter of this year and involves the construction of 160 miles of 30-inch pipeline to deliver LPG from El Paso to Carlsbad. The project is expected to take about a year to complete.

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